ASX:EMN
Last Price:
$0.210
Date of Initial Coverage
04-Sep-20
Initial Entry Price
$0.065
Returns from Initial Entry
223%
Opened: 17-Jun-2022
Shares Held at Open: 1,733,000
What does EMN do?
Euro Manganese (ASX:EMN) is developing a High Purity Manganese project in the European Union (Czech Republic) through the recycling of a tailings resource from a historical mine site.
What is the macro theme?
Manganese is a key input for EV batteries and European nations are adopting pro EV policies with the ultimate aim of phasing out fossil fuel powered vehicles by 2035.
The EU region currently accounts for ~45% of all EV sales. With the size of the global EV fleet expected to grow from 11 million now to ~145 million in 2030, we expect domestic demand for battery metals like manganese to increase exponentially.
Why did we invest in EMN?
Unique exposure to High Purity Manganese
Increasing demand is not being met with increasing supply because the demand outlook is less clear in the short-term. However we have made our investment ahead of time, anticipating exponentially higher demand in the future. EMN has five MOU's signed to supply customers with product as part of the supply-chain qualification process. These, if successful, could form the basis for long-term off-take agreements.
Strategically located in Europe
EMN is strategically located in the heart of Europe, where over 25 EV plants and 30 battery plants will soon be operating. High Purity Manganese is a key raw-material in their supply chain. With VW and Daimler committing to EUR$34/EUR$60B+ in investments over the next 5-10 years into their battery metals supply-chain, EMN may benefit from the increased domestic demand.
New CEO - Appointed in December 2021
We are looking forward to what Dr. Matthew James can accomplish for EMN in 2022/2023. Dr. James is particularly skilled at getting major mining projects operational having helped Lynas raise over A$1 billion of equity and debt funding between 2002 and 2011.
What do we expect EMN to deliver?
Objective #1: Construction of the Demonstration Plant
EMN has designed a Demonstration Plant to produce large-scale samples of High Purity Manganese products. The plant will enable the company to show potential off-take partners they have production capabilities & a commercially viable product. Commissioning of the plant is now expected in September 2022.
Milestones
Receive final shipment of Demonstration Plant Parts (July 2022)
Commission Demonstration Plant (September 2022)
First delivery of samples to customers (Q4 2022)
Objective #2: Definitive Feasibility Study (DFS)
The DFS will give an updated look at EMN's project economics & assist with the financing process going into a final investment decision. Expected in the second half of 2022.
Milestones
Delivery of Definitive Feasibility Study (late Q2 - early Q3 2022)
Objective #3: First Offtake Partner
Large scale samples of High Purity Manganese need to be assessed for quality by end users who then sign an offtake agreement for future supply - an offtake agreement would be a major achievement for EMN in 2022.
Milestones
First offtake partner (Q3 2022?)
Bonus: second offtake partner (Q1-Q2 2023?)
Objective #4: Early Progress on Project Financing
With a new CEO at EMN that is skilled in financing resource development projects, it would be a win to see some early progress on 2023 financing goals come from these offtake agreements.
Milestones
New institutional investor/further institutional investment
Debt or equity financing agreement
What could go wrong?
Product risk
EMN’s Demonstration Plant is unable to produce qualified, commercially viable High-Purity Manganese products that are of interest to potential customers.
Development risk
Tailings recycling projects inherently have a lower-grade ore versus conventional deposits, which can impact the project’s economics, sometimes making it non-viable to operate a tailings mine. Additionally, development of the project also hinges on successful processing of manganese tailings and scaling that operation to produce economic quantities of the product.
Regulatory / permitting risks
Every mine needs a social licence to operate and there are risks associated with any new mining development.
Market risk
There’s a risk that manganese prices decrease and a tailings resource is not seen as attractive to investors, or there is a general market collapse/financial crisis.
Financing risk
Due to a combination of any or all of the above risks, financing for the project is hard to come by or unavailable, and the project does not become operational.
What is our investment plan?
We invested in EMN at 6.5¢, 20¢ and 60¢. We have held EMN shares for over 21 months now and have free carried and taken some profit. We continue to hold 1,733,000 shares of EMN.
We are very interested to see if the new CEO can increase the pace at which the 2022/2023 objectives are achieved.
During the next 12 months if some of the key objectives are achieved and the share price re-rates we will aim to sell about 20% of our position to take some profit. Our long term aim is to hold a position into first production in 2025.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 1,733,000 EMN shares at the time of publication. S3 Consortium Pty Ltd has been engaged by EMN to share our commentary on the progress of our investment in EMN over time.
✅ Initial Investment: @6.5c
✅ Top Slice
✅ Free Carry
✅ Increase Investment: @20c
✅ Free Carry
✅ Increase Investment: @60c
✅ Free Carry
✅ Increase Investment: @60c
✅ Free Carry
✅ Take Profit
✅ Price increases 300% from initial entry
✅ Price increases 500% from initial entry
✅ Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
General updates from EMN
Where to catch EMN quarterly management call [15-Aug-2022]
Last tranche of investment from EIT Energy is in [02-Sep-2022]
Euro Manganese releases quarterly, with cash balance update [19-Dec-2022]
Euro Manganese submits ESIA + Sustainability report [06-Jan-2023]
Where to catch the next EMN conference call [01-Feb-2023]